5 Essential Steps To Navigate Before Securing A Small Business Loan

As a small business owner, you are surely aware of the fact that it is practically impossible to expand your company’s potential without obtaining a loan. However, in these severe economic times, getting a loan implies a great deal of effort from you, as most lenders will not only minutely check and verify if your business passes the credit check, but will also be interested to learn if you are running a healthy establishment. In addition, there are high chances that the lender will ask you to provide collateral.

Even though everything seems rather simple, it is best to take the time and carefully consider the assets that you should use as collateral and find out the options you’ve got to moderate the hazards associated with defaulting the loan. Essentially, before you secure a loan for your small business, you should make sure that:

1. You identified the risksDetermining your company’s needs and establishing a budget that clearly stipulates what you are about to do with the funds represents an excellent way to figure out the collateral as well as the associated risks. Therefore, consult with a financial advisor and evaluate if you can assume the negative effects of defaulting the loan. If the risks are simply too high, perhaps it is best to check for an alternative solution.

2. You analyze your current asset’s valueWhen it comes to identifying the actual value of your asset, most small business owners tend to overestimate them. However, what really matters in the lenders’ book is not what you paid for that asset, but rather its current market value. Consequentially, it is advisable to work with a licensed appraiser and find out how the banks really evaluate your assets. Besides, keeping this information well-documented is a surefire way to impress the lender, since you show them that you are well capable of paying attention to all the relevant factors.

3. You know exactly what to use as collateralEven though facilities and cars are the most commonly utilized collateral, a smart business owner will not take the risk of using either of them as security unless absolutely necessary. After all, if you default on the loan and forfeit your business, the last thing you want is to also lose your car or home. In general, you should consider using valuable assets that you can do without: motorcycles, watercrafts, accounts receivables, business inventory, cash savings, personal deposits or equipment over which you have title of ownership however if you are looking to use your home, be sure that this is the right choice for you and you get professional advice before doing so.

4. You have some negotiation skills (or hire help)If you have a good history credit, then you do not have to settle for anything that you are uncomfortable with and you are in the position of negotiating the commitments in your contract. Because there are numerous lenders out there and you can be classified as an ideal client, the truth is that you can actually get a more than decent secured loan.

5. You always have a backup planIt can happen that the type of loan you want to get is just not suitable for your line of business. Irrespective of whether you do not want to risk it or the asset-based loan is not right for you, make sure you have alternative methods of securing cash ready.